The Principles of Political Economy

Henry Sidgwick

Book III

Chapter V


§4. I have now to call attention to an oversight in the ordinary exposition of the benefits of Free Trade, which is of some importance when the division of the world into separate nations is taken into account and the interests of a single nation alone are considered. It is often assumed, expressly or tacitly, that when a class in a given nation can obtain any kind of commodities cheaper through foreign trade, the nation as a whole must be benefited by their so obtaining it. What is overlooked is the possibility that the portion of the nation from which employment is withdrawn by the change cannot be employed within their own country without a loss of utility on the whole greater than the gain from the cheaper foreign supply of the commodities they were producing before the change. I do not think this result at all a probable one, in the case of a country as large and as industrially advanced as England. But I think it must be admitted in any theoretical treatment of the subject that in order to realise the economic advantage obtainable by free trade between two countries, a displacement of labour and capital out of one of the countries may be necessary: so that the aggregate wealth of the persons living in this country may be reduced by the change.

It maybe worth while to illustrate this result by considering an extreme hypothetical case. Suppose a country (A) so thickly populated that additional agricultural produce could not be obtained from the soil except at a rapidly increasing expense; and suppose that one-third of its actual produce of this kind say, for brevity, its corn---is now consumed by the persons engaged in its chief branches of manufacture. Suppose that the country, having been strictly protected, adopts Free Trade, and that consequently the manufactures in question are obtained at half the price from another country (B) in exchange for corn: and for simplicity let us assume that the result of the fall in price is that the same total price is paid for the manufactures annually consumed. What then are the manufacturing labourers thrown out of work by the change to do? The course most obviously suggested by the circumstances is that they should emigrate and supply the labour required in the extended manufactures of B, or in the newly developed trade between A and B. If they do not do this, there seems no general ground for assuming that they will all be able to find employment in A, as remunerative as that withdrawn from them. No doubt as the cost of production in agriculture may be assumed to increase continuously, a certain amount of additional labour may now be employed in agriculture which will be more productive on the whole than some of the labour employed before the trade was opened---the diminution in the amount of corn produced by each new labourer being more than balanced by the increased power of the corn to purchase manufactures. But if the additional labour is only applicable at a rapidly increasing cost, the point will very soon come at which this balance will be reversed: and it is quite conceivable that a portion of the labourers thrown out of manufacturing employment could not, in the present condition of industry, be employed in A in agriculture so as even to provide their own consumption. And if they could not be profitably employed in agriculture it is theoretically possible that they could not be so employed at all; so that the natural result of Free Trade may be that A will only support a smaller population and that its aggregate wealth may be diminished by the change. The fear of such a result as that just described has undoubtedly been important among the motives that have operated on the side of Protection. I think that the alarm has usually been without much practical justification: but I think that it ought to be met not by a fallacious general demonstration that the result feared cannot happen, but by a careful exposition of the reasons why it is not likely to happen in any particular case to an extent that ought to influence a statesman's action.

Note. In the above discussion I have confined my attention as far as possible to such arguments as are strictly economic and naturally lend themselves to an abstract and technical treatment. There are, I need hardly say, several other considerations both for and against, protection, which would have to be carefully weighed in dealing with the question from a directly practical point of view:---one of which will come to be discussed in the next chapter, in which I shall pass to consider governmental interference with a view to more equitable distribution.

[Back to:][PPE, Book III, Chapter 5, Section 3]  Protection
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